The Cowabunga Strategy for Binary Options – Ride the Waves

Full Review of the Cowabunga Strategy for Binary Options

“Make Pips. Keep Pips. Repeat.” Those awesome three easy steps are “created” by the equally awesome dudes from Babypips.com and if you follow them, it could work wonders for your bank account but although it sounds simple, it’s not. However, the FX-Men from Babypips.com shared with the world a strategy that can help you make money, keep it…and repeat. We are going to use it to trade our favorite instrument: Binary Options, but for that, let’s first explain it.

How to use the Cowabunga System

The system attempts to identify the main trend using a four hour chart and then trade accordingly on the 15 minute time frame. When I first made contact with this strategy, it was love at first sight because trend following and multiple time frame systems are my favorites. This one uses both techniques, resulting in a high win rate, but you should never forget that it’s not the infamous “Holy Grail” of trading and it won’t make you rich overnight.

Let’s start cooking: to identify the main trend we will be using the four hour chart and we are going to add the following “ingredients”:

5 period EMA

10 period EMA

Stochastic with settings 10, 3, 3 (simple)

RSI set to 9

When EMA 5 is above EMA 10, Stochastic is heading up and RSI is above 50, the main trend is UP according to the strategy (the opposite applies for a DOWN trend). Here is how the four hour chart should look now:

Ok, now that we identified the main trend, we will move to a lower time frame to find a good entry. If the trend is UP on the four hour time frame, we will only be looking for long trades on the lower time frame. For that we will be using a 15 minute chart with almost the same indicators but we will add MACD:

5 period EMA

10 period EMA

Stochastic with settings 10, 3, 3 (simple)

RSI set to 9

MACD with settings 12, 26, 9 (use a MACD that shows the histogram)

Now we will switch to a 15 minute chart and we will look for a good long signal almost the same way we identified the main trend: EMA 5 must be above EMA 10, the Stochastic must be moving up (but not in Overbought territory), the RSI must be above the 50 level. The additional condition that must be met is about the MACD histogram: it must go from negative to positive or it must be in negative territory and increasing in value. The picture below shows a good 15 minute long entry according to the system:

Just to make sure that everything is clear, here is a summary of both Long and Short entries:

Long entry:

Four hour chart:

EMA 5 must cross above EMA 10

Stochastic must be moving UP

RSI must be above 50

15 minute chart:

EMA 5 must cross above EMA 10

Stochastic must be moving UP but not in overbought territory

RSI must be above 50

The MACD histogram must go from negative to positive or it must be in negative territory and increasing in value

Short entry:

Four hour chart:

EMA 5 must cross below EMA 10

Stochastic must be moving DOWN

RSI must be below 50

15 minute chart:

EMA 5 must cross below EMA 10

Stochastic must be moving DOWN but not in oversold territory

RSI must be below 50

The MACD histogram must go from positive to negative or it must be in positive territory and decreasing in value

Adapting the Cowabunga Strategy for Binaries

This, my friends is a work in progress and I will be most happy if some of you join us on the Forum in our quest to find the best way of adapting Cowabunga Strategy to Binary Options. Sure, if we get a Long signal, we will buy a Call and if we get a Short one, we will buy a Put, but what’s the best expiry time? And if our broker allows us to Close Early or extend the expiry time, should we do it? If “Yes”, then when is a good time to do that? From what I’ve seen so far, most of the times the trade needs some time before going in the desired direction so if we are using the 15 minute chart for entries, a good idea would be to go for the hourly expiry time on our option. But sometimes it just goes in my direction another 15 minutes and then reverses, making my option expire Out of the Money. These are all questions that can be answered with your help; if you agree with me and consider Cowabunga a good strategy, let’s fully adapt it to Binaries together.

Why does the Cowabunga Strategy Suck?

A newbie would be overwhelmed by the multiple time frame condition that must be fulfilled and all the indicators used so I really don’t think that an inexperienced trader should venture in the trading jungle using this strategy as his/her only weapon. The fact that it’s too complicated can be Cowabunga’s greatest disadvantage…for beginners, while a more experienced trader can find it very appealing. After all, everybody must find the trading style that suits him/her because if something works great for someone, it will not necessarily work the same for everybody.

Why Cowabunga doesn’t Suck?

Going in the direction of the main trend is always better and has a higher chance of success than totally disregarding the trend. The lower time frames like 1, 5 and 15 minutes are sometimes full of “noise” and a trend is harder to identify than on a four hour or daily chart so by making use of the higher time frame, the Cowabunga system makes sure that we only trade in the direction of the main trend and I think this is what prevents it from sucking.

Wrapping it up

Although the Cowabunga system is not the Holy Grail of trading, sent to us by the Binary Options Gods Callinius and Putioux, I consider it to be a good strategy and more important, a safe one. Trades that lose you money will not be “extinct”, but if you follow all the rules correctly, it might prove to be profitable. I trust a strategy created by the guys at Babypips.com because I’ve always admired them and I consider that almost everything coming from them is quality stuff, including the Cowabunga. After all, that’s where I got most of my early Forex education and I know how awesome their skills are.

One Response to “The Cowabunga Strategy for Binary Options – Ride the Waves”

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Larry

02/08/2013 02:50

Not a bad strategy, but too many variables left out. First I would put some kind of daily MA, like a 200 EMA to I identify overall daily trend. Then, I would use a 10 and 20 EMA’s so you could identify bounces and trend and retracement changes. I am new to bianaries, so I have been trying to put my experience as a Forex trader into this. Also, I would think about a different strength indicator to go along with the RSI. Something that compares one currency strength against another. Good site! Great source of information!

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